U.S. charities and donor-advised funds
A new report shows that most U.S. charities have received at least one grant from a donor-advised fund (DAF). The report also finds that most—including those that have received gifts from a DAF—have concerns about these philanthropic vehicles.
Published October 7, 2020, Nonprofits and Donor-Advised Funds: Perceptions and Potential Impacts examines charities’ perceptions of and experiences with donor-advised funds. Researchers from the University of Indiana Lilly School of Philanthropy conducted a national survey, which produced usable responses from 448 charities. These U.S. charities ranged in size from revenues of $100,000 to more than $50 million, represented all subsectors, and were located in all U.S. regions. The researchers also interviewed leaders and development staff at six nonprofits of varying revenue sizes, subsectors, and locations. A grant from Schwab Charitable funded this work.
- Some 70 percent of the respondents have received at least one grant from a DAF during the past three years.
- Some 60 percent expressed concerns about DAFs. The most common issue was inability to communicate directly with donors who give through DAFs.
- Respondents that have received a DAF grant were more positive about DAFs and had fewer concerns about them than charities that had not received a DAF gift.
- Many charities, especially those with incomes under $100,000, don’t understand what DAFs are and how they work.
- U.S. charities that solicited for DAF grants were more than twice as likely to receive them as charities that did not specifically target DAF giving.
- Some 87 percent of charities that discussed DAF grants with donors, communicated with DAF sponsoring organizations, or mentioned DAF giving in fundraising materials received at least one gift through a DAF.
- Only 42 percent of charities that did not solicit for DAF grants received them.
Impact of COVID-19
The survey was conducted between February 2 and April 10, 2020, when the impact of the COVID-19 pandemic was growing. Major U.S. DAF sponsors and community foundations all reported increased grants during the first months of 2020 compared to the same period in 2019. The researchers therefore added two questions about COVID-19 to the survey.
Some 277 charities answered the COVID-19 questions. At that time:
- The majority—53.6 percent—reported fundraising dollars or revenue had decreased, or that they expected them to decrease because of COVID-19.
- Some 15.6 percent stated they had received or expected to receive increased fundraising dollars or revenue because of the pandemic.
- Some 80 percent had changed their fundraising plans, most often by canceling events. Organizations with greater revenue were more likely to have altered their fundraising strategies.
The report’s authors note, “It is likely that organizations’ responses have changed over the course of the crisis, but this data provides an important snapshot of responses during a highly volatile time for the sector.” They also find, “Nearly all organizations in our sample reported some sort of disruption in their fundraising and/ or operations by late March 2020. It is likely that most, if not all, organizations continued to be impacted as the crisis continued into the summer.”
Tips for raising funds from DAFs
The report suggests several ways nonprofits can incorporate DAFs into their fundraising:
- “Talk to your donors about DAFs.” Include information about giving through DAFs in your fundraising materials and on your website.
- Train staff about what is permitted with DAFs. For example, “DAFs cannot be used to purchase memberships; buy tickets to a fundraiser, gala, or other charitable event; or to pay for any other items (e.g. silent auction items).”
- Explain to donors that they can use a DAF grant to fulfill a pledge, but that the donor must inform your organization that is the grant’s purpose. The sponsoring organization cannot mention the pledge when distributing the grant.
- Credit the gift as coming from both the original donor and the sponsoring organization. “Most organizations with a solid process in place to accept and code gifts from DAFs shared that they ‘soft credit’ the donor and ‘hard credit’ the sponsoring organization for the gift.”
- Thank the original donor but remove any language about tax deductibility. The donor received a deduction when they first contributed to the DAF; there is no further tax benefit when they direct the sponsoring organization to distribute a grant to your charity. “Providing tax deductibility information in response to a gift from a DAF can confuse donors.”
- Add the ability to accept DAF grants to your website and include the option of giving through a DAF in your print and online fundraising materials.